Value relevance ò accounting information and the efects ò changes in accounting regulations evidence from vietnam stock market,graduation théis

BANKING ACADEMY OF VIETNAM ADVANCED PROGRAM FACULTY OF ACCOUNTING AND AUDITING GRADUATION THESIS TOPIC: VALUE RELEVANCE OF ACCOUNTING INFORMATION AND THE EFFECTS OF CHANGES IN ACCOUNTING REGULATIONS – EVIDENCE FROM VIETNAM STOCK MARKET Supervisor : Ph.D Dao Nam Giang Student : Hoang Ha Phuong Student’s ID : 19A4020637 Faculty : Accounting – Auditing Class : K19CLC-KTA Hanoi – 2020 COMMITMENT I am Hoang Ha Phuong, a student of K19CLC-KTA I guarantee that my Graduation Thesis is my own research The tables and figures supporting the analysis and evaluation are completely honest In addition, my Graduation Thesis also uses references that have been clearly identified If there exist any frauds, I am totally responsible to Banking Academy of Vietnam Hanoi, 8th June, 2020 The author Hoang Ha Phuong i ACKNOWLEDGEMENT First and foremost, I would like to express my sincere thanks to all teachers in Faculty of Accounting and Auditing and Advanced Program for their dedication Valuable knowledge that I have learnt in nearly years is for not only my internship period but also my future to become an auditor Especially, I would like to express my endless thanks and gratefulness to my supervisor – Ph.D Dao Nam Giang for guiding and supporting me to complete my Graduation Thesis Her constructive comments and continuous encouragement have significantly ameliorated my work Thanks and best regards, ii MENU COMMITMENT i ACKNOWLEDGEMENT ii MENU iii LIST OF ABBREVIATIONS vi LIST OF TABLES AND FIGURES vii CHAPTER 1: INTRODUCTION 1.1 Rationale of the research 1.2 Research objectives 1.3 Research questions 1.4 Research subjects and scope 1.5 Research method 1.6 Research structure CONCLUSION OF CHAPTER CHAPTER 2: THEORIES AND LITERATURE REVIEW 2.1 Accounting information and value relevance 2.1.1 Accounting information and its role 2.1.2 Value relevance 2.2 Literature review 2.2.1 Value relevance of accounting information 2.2.2 The effects of changes in accounting regulations on value relevance CONCLUSION OF CHAPTER 14 CHAPTER 3: RESEARCH METHODOLOGY 15 3.1 Background analysis and Research hypothesis 15 3.1.1 IFRS harmonization in Vietnam and the issues of Circular No.200/2014/TT-BTC 15 3.1.1.1 IFRS harmonization in Vietnam 15 3.1.1.2 The issues of Circular No.200/2014/TT-BTC 16 3.1.2 Research hypothesis 18 3.1.2.1 Value relevance of EPS and BVPS 18 iii 3.1.2.2 The effects of changes in accounting regulations on value relevance 19 3.1.2.3 Value relevance of other factors 19 3.2 Proposed research model 20 3.3 Data and samples 22 3.3.1 Data collection 22 3.3.2 Research samples 23 3.3.3 Data analysis 25 CONCLUSION OF CHAPTER 27 CHAPTER 4: RESEARCH FINDINGS, DISCUSSIONS AND RECOMMENDATIONS 28 4.1 Descriptive statistics and correlation matrix 28 4.1.1 Descriptive statistics 28 4.1.2 Correlation matrix 30 4.2 Regression result 32 4.2.1 Panel data regression 32 4.2.2 Tests for optimal model 35 4.2.3 Tests for reliability of the model 36 4.2.3.1 Test for multicollinearity 37 4.2.3.2 Test for autocorrelation 37 4.2.3.3 Tests for heteroscedasticity 38 4.2.4 Robust standard errors and analysis 38 4.3 Discussions and Recommendations 40 4.3.1 Value relevance of EPS and BVPS and recommendations 40 4.3.2 The effects of changes in accounting regulations on value relevance and recommendations 41 4.3.3 Value relevance of other factors and recommendations 42 4.3.4 Further recommendations 44 4.3.4.1 Research limitations 44 4.3.4.2 Directions for further research 44 CONCLUSION OF CHAPTER 45 iv CONCLUSION 46 REFERENCES 47 APPENDIX 50 APPENDIX 53 v LIST OF ABBREVIATIONS No Abbreviation Explanation GDP Gross Domestic Product VAS Vietnam Accounting Standards POLS Pooled OLS REM Random Effects Model FEM Fixed Effects Model IFRS International Financial Reporting Standards EPS Earning per share BVPS Book value per share P/E Price to earnings ratio 10 CPI Consumer Price Index 11 WB World Bank 12 IMF International Monetary Fund 13 DPS Diluted EPS 14 SP Stock price 15 CIR200 16 FS Firm size 17 LEV Leverage 18 CFO Cash flow from operating activities 19 AFS Audit firm size 20 ROA Return on Assets Circular No.200/2014/TT-BTC vi LIST OF TABLES AND FIGURES LIST OF TABLES Table 2.1 IFRS adoption in the world as of April 2018 10 Table 3.1 Circular No.200/2014/TT-BTC and its effect to listed companies in Vietnam 17 Table 3.2 Model of the research 21 Table 3.3 Research samples 23 Table 4.1 Descriptive statistics 28 Table 4.2 Correlation matrix 31 Table 4.3 POLS 32 Table 4.4 REM 33 Table 4.5 FEM 34 Table 4.6 Breusch-Pagan Lagrangian multiplier test 35 Table 4.7 Hausman test 36 Table 4.8 Collinearity Diagnostics 37 Table 4.9 Wooldridge test for autocorrelation 38 Table 4.10 Modified Wald test for heteroscedasticity 38 Table 4.11 Robust standard errors for correction 39 Table 4.12 Previous findings: EPS leads to higher value relevance than BVPS 40 LIST OF FIGURES Figure 3.1 Distribution of ROA for the period 2010-2019 24 Figure 3.2 Leverage ratio for the period 2010-2019 25 vii CHAPTER 1: INTRODUCTION 1.1 Rationale of the research Vietnam Stock Market was officially launched in 2000 and went through many stages during 20 years The beginning of Vietnam Stock Market is from the period (2000-2005), which market capitalization was only about 1% of GDP In the period from 2006, Securities Law was imposed and came into effect in early 2007, which gradually improved the inadequacies and conflicts among legal documents, therefore, Vietnam Stock Market is more likely to integrate with both foreign and domestic capital markets In 2016, Vietnam Stock Market was evaluated as one of five markets with the highest growth rate in Southeast Asia Throughout 20 years, Vietnam Stock Market is constantly growing with outstanding achievements and the year 2019 marked the first time which Vietnam market capitalization exceeded 100% of GDP Vietnam Stock Market is regarded to be potential market for investors In order to make effective investment decision, potential investors pay attention to factors affecting stock price including external factors (market’s supply and demand, investors’ psychology…) and internal factors (company policy, accounting information…) Among all of these, accounting information is the one that attracted numerous researchers in the world in general and in Vietnam in particular Accounting information can be considered as a product of accounting systems which is based on rules and standards (Core, Guay & Buskirk, 2003) In Vietnam, accounting information is compliance with VAS Thanks to the development of Vietnam economy, new accounting standards have been gradually implemented over the period In 2014, Ministry of Finance in Vietnam issued set of accounting standards according to Circular No.200/2014/TT-BTC, which is asymptotic to IFRS, to replace Decision 15/2006/QD-BTC The new content of Circular No.200/2014/TT-BTC was for accounting vouchers, accounting books and financial statements (Hoang Vu Hai, 2016) These changes on accounting standards actually have huge impacts on financial statements, thus financial ratios, however, how it affects stock price is still the topic that has never mentioned yet Therefore, the topic “Value relevance of accounting information and the effects of changes in accounting regulations - evidence from Vietnam Stock Market” is of pivotal necessity to verify the impact of accounting information on stock price on Vietnam Stock Market and also changes in accounting regulations on value relevance 1.2 Research objectives The overall research objective is to clarify the value relevance of accounting information on Vietnam Stock Market and how changes in accounting regulations affect value relevance Specifically, this study, using modification of Ohlson (1995) model, verifies the correlation between accounting information and stock price and simultaneously evaluates the impact of changes in accounting regulations on value relevance 1.3 Research questions The research focuses on two main research questions: Question 1: What accounting information affects stock price? How does it affect? Question 2: How changes in accounting regulations affect value relevance? 1.4 Research subjects and scope Research subjects: Value relevance, accounting information, stock price, changes in accounting regulations Research scope: - Content: (1) Generalize accounting information and value relevance (2) Summarize and analyze previous researches about value relevance of accounting information and accounting reform (3) Make research hypothesis and design model (4) Test research hypothesis (5) Draw conclusions and make recommendations - Samples: 100 listed companies on Vietnam Stock Market - Time: years pre – or post – changes in accounting regulations following the Circular No.200/2014/TT-BTC 1.5 Research method This research was conducted using both qualitative research and quantitative research method seem to ignore information such as firm size, P/E, leverage, CFO and audit firm size, which affect the financial position of the companies These factors will contribute to give a concise picture of the companies for investors Recommendations: Besides EPS and BVPS, investors should pay more attention to these factors to have insights into the companies In addition, the authorities have to issue policies to enhance the quality of accounting information and auditors, then the awareness of investors as well as their ability for investment analysis and evaluation Simultaneously, companies must be always conscious of improving the quality of accounting information, creating trust for both current and potential investors The most effective way is that each company has to improve their corporate governance by themselves Details are as follows: - Appointing competent and professional board members: The nominating committee should devote adequate time to identify board members who have the skills and knowledge to assist the board - Monitoring organisational performance: It is an essential board function and its role is to ensure the legal compliance and corporate decision making consitent with both the strategy of the organizations and expectations of owners - Evaluating board performance: The board must be willing to examine their own strengths and weaknesses On a regular basis, the board should conduct a selfevaluation processs including the performance if individual directors The evaluation process should be used to identify weaknesses in the board performance and adopt reforms needed to improve the board performance - Prioritising risk management: Every board should establish an effective system for risk oversight and management Effective risk management will lead to better decision-making and accurate cost-benefit or risk-reward decisions - Human resource management: It is not the most important factor to create success of the company However, it plays a crucial role in effective corporate governance of the company Not only they have in-depth knowledge and skills but they also comply with code of ethics Especially as for accounting department, in 43 addition to regularly improving professional knowledge and skills, they have to ensure substance over form, thus the financial statements that are true and fair presentation In Vietnam, the majority of companies are SMEs However, corporate governance of SMEs does not work well due to market capitalization and human resource Therefore, all companies in general and SMEs in particular have to issue strict policies in order for effective corporate governance 4.3.4 Further recommendations 4.3.4.1 Research limitations Like any other work of research, this study has the following limitations: Firstly, this study only analyzed some factors including EPS, BVPS, FS, LEV CFO and AFS There are various accounting information that can be investigated such as DPS, quick ratio, accounts receivable, turnover ratio, inventory turnover ratio and liquidity ratio Secondly, the sample size of this study was only 100 listed companies on Vietnam Stock Exchange over 10-year period (the total number of listed companies on Vietnam Stock Market is 1.605 enterprises as of 2020) Although these samples are suitable for regression analysis, this was still a small sample compared to quantitative and panel data 4.3.4.2 Directions for further research Based on the above limitations, this thesis assessed the impact of small number of factors affecting the stock price on Vietnam Stock Market Other factors, such as DPS, quick ratio, accounts receivable, turnover ratio, inventory turnover ratio and liquidity ratio , could be investigated in future studies Thus in the future, it is possible to explore and expand to evaluate other factors affecting stock price in listed companies on Vietnam Stock Market in order to build a more complete and meaningful model In the future, other study conducted may increase the number of listed companies on Vietnam Stock Market and compare the difference between industries and types of enterprises to make a more general assessment 44 CONCLUSION OF CHAPTER Chapter clarifies the correlation between variables and also represents regression result of the model developed in the previous chapter in order to provide evidence about the relationship between variables Specifically, the main results are summarized as follows: This is panel data and regression analysis was applied using models: POLS, REM, FEM The most appropriate model is FEM Model is autocorrelation and exists heteroscedasticity, then use Robust standard errors for correction After omitting variables that have no statistic significant, the model is: Stock price = 7444.126 + 1.713094EPS + 0.6216174BVPS + 1.513526CIR200*EPS + uit There is a positive correlation between EPS, BVPS, CIR200*EPS and the stock price EPS leads to higher value relevance compared to BVPS in selected companies on Vietnam Stock Exchange over 10-year period (2010-2019) and CIRCULAR200 contributes to enhance the correlation between EPS and stock price; thereby the author makes some recommendations to improve the value relevance of accouting information and changes in accounting regulations 45 CONCLUSION Currently, “value relevance of accounting information” is not new topic However, how changes in accounting regulations following the Circular No.200/2014/TT-BTC affect stock price is completely new Therefore, this graduation thesis has chosen the topic “Value relevance of accounting information and the effects of changes in accounting regulations - evidence from Vietnam Stock Market” with the hope of finding the factors that affect stock price in listed companies on Vietnam Stock Market, the level of impact and investigating how changes in accounting regulations affects value relevance In this findings, research questions are raised in Chapter and answered in Chapter Details are as follows: Question 1: What accounting information affects stock price? How does it affect? Both EPS and BVPS have a positive relationship with the stock price Especially, EPS leads to higher value relevance than BVPS Other factors ịncluding firm size, leverage, audit firm size, cash flow from operating activities are insignificant to stock price Question 2: How changes in accounting regulations affect value relevance? Changes in accounting regulations (Circular No.200/2014/TT-BTC) enhances the relationship between EPS and stock price From the results, the author makes some recommendations for investors, listed companies and the authorities Also, the author makes further recommendations about limitations of the research, simultaneously indicates further direction of the research in the future 46 REFERENCES AR, R., 2004 Accounting Institutional Environment And The Value Relevance Of Accounting Earnings, s.l.: NTU AZAM, M., 2011 Stock Price Variation Regarding Macro-Economic and Firm-Specific Accounting Variables: Evidence from Karachi Stock Exchange International Research Journal of Finance and Economics, Issue 81, pp 77-88 Bartulović, I P & M., 2014 Value relevance of accounting information: evidence from South Eastern European countries Economic Research-Ekonomska Istraživanja, 27(1), pp 181-190 Beuselinck, 2005 Essays on Financial Reporting Quality, Earning Management, and Corporate Disclosure, Ghent: University of Ghent Chalmers, K., 2009 Changes in value relevance of financial information upon IFRS adoption, Melbourne: s.n Core, J E G., 2003 Market Valuations in the new economy: An investigation of what has changed Journal of Accounting and Economics,, 34(2), pp 43-67 D, M M G P., 2014 The Impact of Accounting Variables on Stock Price: Evidence from the Colombo Stock Exchange, Sri Lanka International Journal of Business and Management;, 9(5), pp 125-137 Elshandidy, T., 2014 Value relevance of accounting information: Evidence from an emerging market Advances in Accounting,, 30(1), pp 176-186 Glezakos, M., 2012 The Impact of Accounting Information on Stock Prices: Evidence from the Athens Stock Exchange International Journal of Economics and Finance, 4(2), pp 56-68 10 Hải, H V., 2016 INNOVATION CONTENTS OF CIRCULAR 200/2014/TT-BT COF ACCOUNTING VOUCHERS, ACCOUNTING BOOKS TẠP CHÍ KHOA HỌC VÀ CÔNG NGHỆ LÂM NGHIỆP , Volume I, pp 93-100 11 Karğın, S., 2013 The Impact of IFRS on the Value Relevance of Accounting Information: Evidence from Turkish Firms International Journal of Economics and Finance, 5(4), pp 71-80 12 Khanagha, J B., 2011 J Barzegari Reform in Accounting Standards: Evidence from Saudi Arabia Archive of SID, 1(3), pp 113-124 13 Khanagha, J B., 2011 The impact of reforms on the value relevance of accounting information: Evidence from Iran African Journal of Business Management, 5(1), pp 96-107 14 LỘC, T Đ., 2016 ẢNH HƯỞNG CỦA THƠNG TIN KẾ TỐN ĐẾN GIÁ CỦA CÁC CỔ PHIẾU: BẰNG CHỨNG THỰC NGHIỆM TỪ SỞ GIAO DỊCH CHỨNG KHỐN THÀNH PHỐ HỒ CHÍ MINH TẠP CHÍ KHOA HỌC ĐẠI HỌC MỞ TP.HCM, 4(49), pp 62-71 15 Mạnh, P T., 2017 Determinants of market price in listed firms on Hanoi stock exchange (HNX) Journal of Science of Lac Hong University, Issue Special, pp 66-70 16 Mirza, A., 2019 Value relevance of financial reporting: Evidence from Malaysia Cogent Economics & Finance, 7(1), pp 1-19 17 NACEUR, S B., 2016 Does the Tunisian accounting reform improve the value relevance of financial information?, Tunisia: s.n 18 Odoemelam, N., 2019 Effect of international financial reporting standard (IFRS) adoption on earnings value relevance of quoted Nigerian firms Cogent Business & Management,, pp 1-22 19 Ozili, P K., 2019 Bank earnings smoothing during mandatory IFRS adoption in Nigeria African Journal of Economic and Management Studies,, 10(1), p 32–47 20 Paglietti, P., 2009 Earnings management, timely loss recognition and value relevance in Europe following the IFRS mandatory adoption: evidence from Italian listed companies Economia Aziendale Onlime, Volume 4, pp 97-117 21 Ragaba, A A., 2002 Accounting Information, Value Relevance, and Investors’ Behavior in the Egyptian Equity Market, Egypt: s.n 22 Sunder, 2002 Regulatory competition among accounting standards within and across international boundaries J Account Publ Pol.,, Volume 21, pp 219-234 23 VPBank, 2015 TT200 VÀ ẢNH HƯỞNG ĐẾN CÁC DN NIÊM YẾT, Hà Nội: s.n 24 Wang, H C., 2008 THE ASSOCIATION BETWEEN ACCOUNTING INFORMATION DISCLOSURE AND STOCK PRICE GLOBAL JOURNAL OF BUSINESS RESEARCH, 2(2), pp 1-10 25 Wang, J., 2013 Accounting Information and Stock Price Reaction of Listed Companies — Empirical Evidence from 60 Listed Companies in Shanghai Stock Exchange Journal of Business & Management, 2(2), pp 11-21 APPENDIX CHANGES OF CIRCULAR NO.200/2014/TT-BTC: - As for accounting vouchers: + Enterprises have the right to design their own forms as long as it is clear and easy to check, which meets requirements of Accounting Law + In case enterprises not design forms for themselves, they can apply the guidance in Appendix of Circular No.200/2014/TT-BTC - As for accounting books: + Enterprises have the right to design their own forms as long as it is clear and easy to check, which meets requirements of Accounting Law + In case enterprises not design forms for themselves, they can apply the guidance in Appendix of Circular No.200/2014/TT-BTC + Be entitled to self-correct accounting books in accordance with Accounting Law and retrospectively following VAS 29 - As for accounting accounts: + Do not separate short-term and long-term on the account and only separate on “Statement of Financial Position” + Renew accounts of Financial Investment (trading securities, held to maturity investments, available for sale) + Substance over form - As for Financial Statements: (1) Prepare Financial Statements + Add and update some items on “Statement of Financial Position” and “Statement of Cash Flow”, add DEPS on “Income Statement” + Definitely reform “Notes to Financial Statement”, specially, enterprises need to give detailed information about third party in order to prevent transfer pricing and show their bad debts and deferred payment debts + Comply with substance over form when assets, liabilities, income and expense are recorded + Not recognize an asset at a value that is higher than the amount which is expected to be recovered from its sale or use Conversely, liabilities of an entity should not be presented below the amount that is likely to be paid in its respect in the future + Reclassify short-term assets – long-term assets and short-term – long-term liabilities + Accounting is not for tax purposes but for general purposes in order to give transparent information to stakeholders + Standards were updated based on IFRS such as IFRIC 13, IFRIC 15, IFRS 3, IFRS 10, IFRS 15, IAS 16, IAS 36, IAS 39, IAS 40 but not contrary to Accounting Law (2) “Statement of Financial Position” + Assets and liabilities are recovered and paid within 12 months => short-term + Assets and liabilities are recovered and paid more than 12 months => longterm + Assets: Add item “short-term prepayments to suppliers” (code 212) Add item “shortage of assets awaiting resolution” (code 139) Add items “short-term loan receivables” (code 135) and “long-term loan receivables” (code 215) Work-in-progress exceeds operating cycles and does not meet the definition of Inventory => item “long-term work-in-progress” (code 241) Equipment and spare parts for replacement exceeds 12 months or operating cycle and does not meet the definition of Inventory => long-term equipment and spare parts for replacement (code 263) Item “Provision for devaluation of stocks” does not include provision for longterm work-in-progress and long-term equipment and spare parts for replacement + Liabilities: Add item “long-term prepayments from customers” (code 332) Add item “short-term unearned revenues” (code 318) Add item “price stabilization fund” (code 323) Add item “convertible bonds” (code 339) + Equity: Add item “preference shares” (code 340) Item “undistributed profit after tax” (code 421) is divided into separate items: “undistributed profit after tax brought forward (code 421a) and undistributed profit after tax for the current year (code 421b) (3) “Income Statement” + Item “revenues from sales and services rendered” (code 01) does not include indirect tax such as VAT, excise tax, export duties, environment protection tax and other taxes and fees + Item “revenue deductions” (code 02) does not include indirect tax and fees which must be remitted to state budget + Item “Other income” (code 31) and “Other expense” (code 32): The difference between residual value and disposal value of fixed assets and investment property => Other income/Other expense (4) “Statement of Cash Flow”: + The amount borrowed is presented as inflow of cash flow from financing activities + The amount paid to suppliers or contractors is presented as outflow of either cash flow from operating activities or cash flow from investing activities based on substance of each transaction (5) “Notes to Financial Statement” + Add one more “Notes to Financial Statement” for enterprises which are not going concern + Give information about normal business operating cycle of enterprises + As for items on “Statement of Financial Position” and “Income Statement”, give more details besides numbers For example, regarding items “short-term receivables”, companies need to figure out the customers and the amount they owed… APPENDIX REGRESSION RESULTS COMMENTS OF SUPERVISOR This research has a clear and strong layout in accordance with criteria set out The rationale of this research is suitable when Vietnam is in the context to prepare IFRS adoption The issues of CIRCULAR NO.200/2014/TT-BTC which is asymptotic to IFRS exerts huge changes in accounting regime in Vietnam Although related documents in Vietnam are limited, my student makes use of studies from other countries Especially, this research uses Ohlson model to analyze and produce results effectively and accuracy, answering the questions that are raised in the first chapter Therefore, this research contributes to evaluate value relevance of accounting information of 100 selected Vietnamese listed companies in 10 consecutive years and the effects of CIRCULAR NO.200/2014/TT-BTC on value relevance The results show in a positive way that CIRCULAR NO.200/2014/TT-BTC enhances the relationship between EPS and stock price Thereby, my student makes some recommendations for corporate governance improvement to enhance the accounting quality of companies, especially, for investors’ effective decisions In summary, I would like to comment that my student’s graduation thesis has met the requirements Supervisor (Sign and name)